Intel to enter Web appliance market

Intel will further expand its horizons beyond the
microprocessor today when it details plans for selling Linux-powered Internet appliances that make phone calls, surf the Web and send and receive email.

The new appliances, which will come out toward the middle of the year, will
essentially combine a phone with a limited but upgradeable Internet PC. Prices will range from $300 to $700 with monthly service starting at $25 to $30, said Claude Leglise, general manager of the home products group at Intel, although actual pricing and service packages will depend upon the
communications carrier offering the service.

"In our minds, the target group are homes that don't have computers," Leglise said. "It could replace the family phone."

The Santa Clara, Calif.-based giant will announce its intentions at the Computer Electronics Show in Las Vegas.

Some analysts are viewing the plan positively, because it appears to work out some of the kinks that have held back Internet appliances in the past. The box will have a bigger monitor than Web phones, for instance, but won't have to rely on the TV, a lower-resolution and sometimes inconvenient screen.

Designs will vary, but generally the appliances will contain keyboards,
standard or flat-panel monitors and a phone handset or other device for conducting calls, according to sources familiar with the company's plans.

Many of the devices will be DSL-ready or contain technology that will allow users to surf the Web on standard phone lines without completely disconnecting from the phone, according to Richard Doherty, principal at The Envisioneering Group.

All of them will feature the Intel brand name, an Intel processor and a slew of non-Microsoft software. The standard box will contain the Linux operating system, a Mozilla browser and generally a portal interface from InfoSpace. Telephony and
messaging capabilities will come from Telcordia and Lucent.

US West will market the devices in the United States, while NEC's BiGlobe and Laser Galeries Lafayette Group in France will sell them to customers in Japan and Europe, respectively, Leglise said.

Intel is also developing back-end software so that communications carriers can upgrade software inside home units, said Leglise.

Hypothetically, the ability to play MP3 files could be added, which isn't universally possible on Internet devices.

A typical Web phone "is obsolete the day it comes out," Leglise said. "We want to offer appliances that can keep up."

The Web appliances deliberately aren't stripped-down PC systems. "We're getting pretty saturated with low-cost PCs," said Dean McCarron, principal analyst with Mercury
Research. "The idea is a Web phone or a Web companion but not a PC box."

Nonetheless, the strategy appears to contain the potential to strain
longstanding relationships with Intel's computer customers. Compaq Computer, IBM and others plan to bring out similar devices, some of which will also be based around Intel chips. The devices also entirely depend upon non-Microsoft software.

Analysts tended to doubt that a direct conflict between the chip giant and PC makers will come to pass, however. Most likely, Intel is mostly trying
to drive interest in these devices, they said. If and when demand exists, there is a good chance the company will step out of the box business and revert to making money by selling processors.

"Intel has in the past taken the initiative in establishing new markets or
market segments. If it becomes big, they do a handoff," said Nathan
Brookwood, principal consultant with Insight 64. Still, conflict could appear depending on Intel's future actions, McCarron hypothesized.

Leglise noted that NEC is a major Intel customer. "Obviously, they don't have a problem with it," he said.

Initially, Intel will not participate in the revenue or profit from providing services, Leglise said. The company will merely sell the devices to telephone companies or ISPs, which will then figure out how to price and sell them for mass consumption. Intel also does not make the box but instead has enlisted an Asian contract manufacturer.

Most companies, including Microsoft and Compaq, are or plan to subsidize
the price of the hardware through the service contracts. Many analysts have
said that little money will be made off of the devices themselves.

The decision to go with Linux, meanwhile, came out of customer concerns.

"Customers have asked for Linux as the OS," Leglise said. Selecting Linux
will likely reduce the overall system costs, as the software can be licensed freely. Browsers from Mozilla, which spun out of Netscape, can also be obtained for free.

The appliances may also further proliferation of broadband technologies, said Envisioneering's Doherty. The market can be seeded with the first generation of devices and lead to momentum for DSL, he said.

Devices have increasingly become a larger part of Intel's overall plans.
The company has signed deals with Hughes, Nokia and other companies to
provide processors for set top boxes that eventually will get sold in
the U.S., Europe and Asia.

Contrary to even Intel's early expectations, the chip of choice for many of
these devices has been the Celeron, rather than the StrongArm processor
acquired from Digital. Celeron partiality comes from the fact that the chip
is based around the Pentium architecture and therefore will be compatible
with the vast majority of plug-ins found on the web.